(Bloomberg) — China is scrapping a long-standing gold tax incentive in a potential setback for consumers in one of the world’s top bullion markets.
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Gold Tax
Starting on Nov. 1, Beijing will no longer allow retailers to offset a value-added tax when selling gold they bought from the Shanghai Gold Exchange, whether sold directly or after processing, according a new legislation from the Ministry of Finance.
Jewelry and Industrial Materials
The rule covers both investment products – such as high-purity gold bars and ingots, as well as coins approved by the People’s Bank of China – and non-investment uses including jewelry and industrial materials.
The move should bolster government revenue at a time when a sluggish property market and weak economic growth have strained public coffers. But the changes will also likely increase the cost of buying gold for Chinese consumers.
A buying frenzy among retail investors around the world recently helped gold’s record-breaking rally move to overbought territory, setting the precious metal up for an abrupt correction.
Gold’s worst rout in more than a decade coincided with a reversal of relentless buying through exchange-traded-funds, which had been on the rise since late May. It also matched the end of seasonal buying linked to festivities in India. A trade truce between the US and China, meanwhile, eased demand for bullion as a haven asset.
Many in the industry, still see prices nearing $5,000 an ounce in about a year.
–With assistance from Jack Farchy.
(Updated more details in the third paragraph)
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FAQs
Why did China scrap the gold tax perk?
China removed the gold tax perk to tighten financial regulations and align with broader economic reforms, aiming to stabilize the market and prevent speculative trading.
How will this affect gold prices globally?
The removal of the tax perk is expected to increase gold prices in China, which may ripple through global markets due to China’s significant role in gold demand.
What does this mean for gold investors?
Investors may see increased volatility in gold prices and should monitor market trends closely, as China’s policy changes can impact global bullion demand and supply.
Is this move likely to affect other precious metals?
While the immediate impact is on gold, similar policy changes could influence investor sentiment toward other precious metals, especially in markets with strong Chinese demand.
How can traders respond to this news?
Traders should stay updated on regulatory developments, diversify their portfolios, and consider hedging strategies to manage potential risks from market volatility.